Colombia’s peso bonds dropped, pushing yields to their highest level this month, on speculation the government may issue more local debt to finance increased spending after higher-than-average rainfall left thousands homeless and destroyed roads in the South American country.
Mounting concern that damage from the rains will stoke inflation also hurt demand for fixed-rate securities, according to Andres Pardo, head analyst at Corporacion Financiera Colombiana SA. The heavy rainfall in Colombia may continue to push up prices of some farm goods in the “coming months,” central bank chief Jose Dario Uribe said in an interview with Portafolio newspaper. Quickening inflation damps returns on fixed-rate bonds, prompting investors to demand a higher yield.
The yield on benchmark 11 percent bonds due 2020, known as TES, rose 6 basis points, or 0.06 percentage point, to 7.54 percent at 2:33 p.m. New York time, according to Colombia’s stock exchange. That’s the highest level on a closing basis since Nov. 30. The bond’s price dropped 0.481 centavo to 122.994 centavos per peso.
“With uncertainty regarding inflation and now concern over new issuance, investors are leaning toward reducing their TES holdings or at least not adding to them,” Pardo said.
President Juan Manuel Santos on Dec. 7 declared an economic and social emergency which will allow the government for the next 30 days -- extendable to 90 days -- to seek new sources of revenue. Options include increasing taxes or issuing more debt, according to Pardo.
Consumer prices rose 0.19 percent last month, the national statistics agency said Dec. 4, almost double the median forecast for a 0.10 percent increase among 20 economists surveyed by Bloomberg.
Rains have damaged 195,000 hectares (481,855 acres) of crops in Colombia or about 4 percent of the country’s farmed land, leading to an estimated loss of 881 billion pesos ($461 million), according to the Colombian Agriculture Society. About 330,000 families have lost their homes, the government says.
Colombia’s peso plunged 1.4 percent to 1,908.38 per U.S. dollar, from 1,882.60 yesterday.